Find the latest breaking news and information on the top stories, science, business, entertainment, politics, and more.

Some buyers find deals in shifting Southern California housing market

Stephen Jackson lost more than a dozen properties as At home prices rose during the housing market pandemic. He finally stopped his quest in 2021 when someone outbid him for an apartment in Tarzana with $25,000 – and paid in cash.

“I was like, ‘I’m never going to get a great home here,'” the 31-year-old human resources manager said.

Mortgage rates exploded last year, making skyrocketing prices even less affordable and home sales falling.

When his roommate decided to move in October, Jackson chose to look again, this time looking for deals swirling in the countercurrents of real estate fallout.

Last month, he made an offer on a two-bedroom apartment in downtown LA that had been on the market for 72 days. At $20,000 below the list price of $450,000, his offer – the only one – was accepted.

“All my friends were shocked that I was buying a house now, and I thought, ‘Why wouldn’t you?'” Jackson said.

Home demand is a far cry from the peak of the pandemic housing boom, but Southern California realtors and mortgage brokers say they’ve seen more people like Jackson dip their toes into the market to take advantage of temporary possibilities.

Although mortgage rates are high, they have come off their all-time high of 7% and house prices have fallen as sellers struggled to get offers.

In LA County, during the four weeks ended Feb. 5, the number of purchase contracts signed was 42% lower than the same period last year, according to data from real estate firm Redfin. Still, that’s an improvement from the 51% drop in early December.

“The temperature in the room is still cold,” said Taylor Marr, an economist at Redfin. “But it’s not frozen.”

Whether the modest rebound will continue is unclear. Returning buyers may need to quickly adjust what they can afford.

Over the past two weeks, mortgage rates – strongly influenced by inflation – have risen again after economic reports indicate that it will be more difficult than expected to reduce inflation.

The average on a 30-year fixed mortgage rose to 6.32% for the week ending Wednesday, from 6.09% two weeks earlier, according to Freddie Mac, the government-backed mortgage buyer. A daily tracker from industry publication Mortgage News Daily puts the average even higher: 6.8% as of Friday.

One mortgage broker said he noticed a “massive pullback” in demand as rates rose last week, while other brokers and brokers said they saw buyers plow ahead fearlessly.

For potential buyers who put down 20%, the monthly mortgage payment on an $800,000 home would be about $100 more expensive at 6.32% interest than at 6.09%. But the 6.32% payment is $322 less than the 7.08% payment, where rates peaked in the fall, according to Freddie Mac.

Falling home prices help offset some of the pain of high rates.

Overall, home prices in LA County are down 3% to 14% since the price spike last year, according to a review from several platforms that track prices in different ways. In addition, with less competition, sellers are more likely to pay for repairs or cover a buyer’s closing costs. Some will buy off a buyer’s interest.

Tressa Pope, founder of TPG Mortgage Lending in Burbank, said people who use down payment programs have also been lucky. When competition was fierce, sellers often refused to consider those buyers, fearing that paperwork would stall deals.

Not everyone can or wants to jump into the market right now.

Dana Robinson, a 46-year-old freelance writer, and Scott Rowden, a 44-year-old video editor, rent an apartment in Sherman Oaks and want to buy a house nearby to build equity and give their 2-year-old daughter a backyard.

But with homes in the area typically costing more than $1.5 million, the dream is out of reach. The pair hope to begin searching late this summer or early fall. By then, prices will ideally have dropped enough that they can stretch their budget to buy.

“If not, we’ll push it back,” Robinson said.

Such ongoing affordability challenges are a major reason why some experts predict that Southern California home prices will continue to fall.

Although mortgage rates have fallen from 7%, they remain above 6% – about double the level that has driven house prices to an all-time high.

“Affordability still looks very bad at 6%,” said Rick Palacios Jr., director of research at John Burns Real Estate Consulting.

The consultancy expects rates to average around 6% for the remainder of 2023. By the end of the year, it predicts, LA County home prices will have fallen by “high-single digits” percentage-wise compared to December 2022 — a point in time when the company’s home price index already had a 5% drop from the peak recorded.

Jeff Tucker, a Zillow economist, said it’s possible housing prices have already bottomed out. Inventory is very low and a modest increase in demand could be enough to push prices back up, he said.

On the other hand, higher mortgage rates could dampen a modest recovery.

During the week ending Feb. 10, U.S. mortgage applications — precursors to home sales — fell compared to the previous week when rates rose, according to the latest data from the Mortgage Bankers Assn.

“Potential buyers remain quite sensitive,” Joel Kan, an economist at the Mortgage Bankers Assn., said in a press release announcing the data.

Given the uncertainty, would-be homebuyers have a lot to think about. If they buy now and prices continue to fall, they may not have enough equity to sell and could become vulnerable to foreclosure if they lose their jobs.

Jeff Lazerson, president of Mortgage Grader in Laguna Niguel, said he thinks buyer skittishness is why many deals fall apart in escrow.

“They’re worried,” Lazerson said of buyers. “It’s, ‘If I wait six months, will the price drop?'”